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| Some men rob with a six gun, some with a fountain pen. |
The latest scandal in the world of high finance and risky trading involves the London-based bank Barclay’s. It just shows that the greed of the one percent knows no limits.
Barclay’s already paid more than $450 million to U.S. and British bank regulators to settle charges that it manipulated LIBOR. But the scandal is spreading to more big banks. It's a gigantic financial crime.
But first about LIBOR: It stands for the "London Interbank Offered Rate." It's the average interest rate that big London banks say they'd charge if they were borrowing from other banks. The LIBOR rate is a guide to rates charged for trillions -- yup, trillions -- of dollars in loans throughout the world financial system.
This is complicated stuff. But one thing isn't complicated: a bunch of rich guys stole money. Maybe even yours.
As former Labor Secretary Robert Reich explains, instead of setting the LIBOR rate according to future worth, the bankers rigged the interest rate so their derivative gambling paid off at the expense of anyone on the other side of the bets. Reich tells us who else is involved:
So far, the scandal has been limited to Barclay's …whose top executives have been forced to resign, and whose traders' emails give a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks.This is massive fraud, Reich adds:
But Wall Street has almost surely been involved in the same practice, including the usual suspects -- JPMorgan Chase, Citigroup, and Bank of America -- because every major bank participates in setting the LIBOR rate, and Barclay's couldn't have rigged it without their witting involvement.
This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us -- whose money they've used for to make their bets -- losers and chumps.According to the Wall Street Journal, the LIBOR rate affects a mind-blowing $800 trillion in various financial contracts – that’s 10 times the annual output of the entire planet!
Rolling Stone’s Matt Taibbi sums up the stakes like this:
This is unbelievable, shocking stuff. A sizable chunk of the world's adjustable-rate investment vehicles are pegged to Libor, and here we have evidence that banks were tweaking the rate downward to massage their own derivatives positions.The impact of the crime isn't entirely clear yet and may not be for months. We do know this: Hundreds of local governments in America may have been fleeced by Wall Street if LIBOR rates were artificially lowered. According to the Economist:
[The city of] Baltimore entered into over $100m in interest-rate swaps…Lower LIBOR-linked payments to the city would have meant less money to cover the outgoing fixed-rate payments. If LIBOR was artificially suppressed, the city would have been losing millions annually.Naked Capitalism puts the LIBOR swindle in perspective
When people go to conduct business, they expect (or at least once did) to be treated fairly by vendors. And it wasn’t that long ago that regulators would come down hard on firms that broke the rules, not based on any computation of damages, but on the idea that certain types of behavior were not tolerated.Once again, the super-rich have demonstrated they will do anything for profit, including robbing all of us blind. This scandal proves how thoroughly rotten the banking system is and why stronger enforcement is still desperately needed.
-- Union Thug